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Island South-East Asia (ISEA) is a highly humid region that hosts the world's largest tropical peat deposits. Most of this peat accumulated only relatively recently during the Holocene, suggesting that the climate was drier and/or more seasonal during earlier times. Although there is evidence for savanna expansion and drier conditions during the Last Glacial Maximum (LGM, 21 ka BP), the mechanisms behind hydroclimatic changes during the ensuing deglacial period have received much less attention and are poorly understood. Here we use CESM1 climate model simulations to investigate the key drivers behind ISEA climate at the end of the Late Glacial (14.7–11.7 ka BP), with a focus on the last stadial of the Younger Dryas (12 ka BP). We further simulate the preceding Allerød (13 ka BP) interstadial climate and perform a sensitivity experiment to disentangle the climate impacts due to orbital forcing and Late Glacial boundary conditions against a slowdown of the Atlantic Meridional Overturning Circulation (AMOC). A transient simulation (TRACE) is used to track the climate seasonality and orbitally driven change over time during the deglaciation into the Holocene. In agreement with proxy evidence, CESM1 simulates overall drier conditions during the Younger Dryas and Allerød. More importantly, ISEA experienced extreme seasonal aridity, in stark contrast to the ever-wet modern climate. We identify that the simulated drying and enhanced seasonality in the Late Glacial is mainly the result of a combination of three factors: (1) large orbital insolation difference on the Northern Hemisphere (NH) between summer and winter, in contrast to the LGM and the present day, (2) a stronger (dry) East Asian winter monsoon caused by a larger meridional thermal gradient and (3) a major reorganization of the Indo-Pacific Walker Circulation with an inverted land-sea circulation and a complete breakdown of deep convection over ISEA in NH winters. The altered atmospheric circulation, sea surface temperature and sea level pressure patterns led to conditions resembling extreme El Niño events in the modern climate and a dissolution of the Intertropical Convergence Zone (ITCZ) over the region. From these results we infer that terrestrial cooling of ISEA and at least a seasonal reversal of land-sea circulation likely played a major role in delaying tropical peat formation until at least the onset of the Holocene period. Our results also suggest that centennial to millennial shifts in AMOC strength modifies the Pacific Ocean hydroclimate via alteration of the position of the ITCZ, and a modulation of the Pacific Walker Circulation. However, Late Glacial AMOC shifts are overall less important than hydroclimate changes due to orbital forcing and boundary condition changes relative to the modern climate.